ine President Rodrigo Duterte inspects the newly constructed Estrella-Pantaleon Bridge in Manila, Philippines, along with Senator Bong Ju, Chinese Ambassador to the Philippines Huang Shilian, and Minister of Public Works and Highways Mark Villar.
Credit: Facebook / Rody Duterte
When Rodrigo Duterte assumed the presidency of the Philippines in 2016, his economic vision for the country was crystal clear: build infrastructure and boost investment. The cornerstone of this plan was the “Build, Build and Build” programme, in which the government targeted dozens of infrastructure projects for priority development through a combination of public and private financing from external and domestic sources.
With Duterte’s six-year term coming to an end, the government has also passed several investor-friendly legislative reforms aimed at accelerating foreign capital inflows. These restrictions included easing restrictions on foreign ownership of public services, making it easier for foreigners to open small and medium-sized businesses, and liberalizing the retail sector.
How effective are these efforts? Rappler did a detailed review of Build, Build, Build in June, noting that only a handful of projects were actually completed, many of them encountering long delays and other issues. Likewise, the pandemic has delivered a wrench in business, forcing a major shift in government spending and financing. But nevertheless, data from Duterte’s presidency tells a fairly consistent story that investment and construction have increased exponentially.
Let’s take a look at investment approvals over the past several years. This data is not perfect, as it represents approvals rather than investment realized, but it can give a sense of general trends. What it shows is that investment approvals accelerated after Duterte took office, rising from PhP 686 billion in 2016 to PhP 1.3 trillion in 2019. That’s a 90 percent increase over 3 years, driven largely by domestic investment. During the same period, fixed capital formation grew at an average annual rate of 12 percent. The balance of payments also recorded significant capital inflows, with net foreign direct investment averaging $6 billion annually from 2016 to 2019.
These numbers correspond to an economy that is experiencing an increase in investment and fixed capital formation, such as infrastructure construction. This includes a massive upgrade of the urban rail and commuter rail system in and around Manila, extensions to toll road networks, new airports and industrial park projects, and significant increases in the country’s electricity generation capacity which grew by 40 percent from 2015 to 2020. So there are clear indications However, during Duterte’s administration, many objects were already built or in the process of being built even if many of them had not yet been completed.
Next question, how is it paid for? I think the government has done a good job spreading it, with a mix of government funding, public-private partnerships, and loans from development actors like the Japan International Cooperation Agency and the Asian Development Bank. However, it was hardly free. Once Duterte took office, the Philippines began running a large fiscal deficit that amounted to more than 3 percent of GDP even before the outbreak of the pandemic.
This type of development can also affect the current account as there will usually be an increase in imports. This is the case in the Philippines. Imported capital goods (such as telecommunications, power and transportation equipment) nearly doubled from $19.6 billion in 2015 to $37.4 billion in 2019. This is consistent with a country that imports equipment and goods to build roads, railways, bridges, airports, power plants and other infrastructure. But it also means that under Duterte, the Philippines has consistently run a huge deficit in tradable goods, reaching $49 billion in 2019.
So how much of this can be personally attributed to Rodrigo Duterte? He has benefited from the loose monetary policy of the global financial system and the desire of global lenders to invest in regional infrastructure. Duterte’s main strategy was essentially to do nothing drastic on the economic front that would upset the momentum generated during the administration of this advance (investing and fixed capital formation already began to pick up during the Benigno Aquino III period). Duterte is likely attributed to the acceleration of the pace and scale of this path with increased foreign capital inflows. As a result, the Philippines has seen a flurry of investment and construction activity.
The other side of this development strategy is the fiscal deficit and the accumulation of liabilities on the country’s balance of payments from foreign loans, foreign investment and rising imports. These things are neither good nor bad – their effect depends on the uses for which they are used. There is a compelling argument that taking on commitments to invest in infrastructure is a good trade-off.
But since we are now in the era of high commodity prices, exchange rate volatility in emerging markets and global monetary tightening, import-dependent countries like the Philippines with fiscal deficits and a double current account will find that this is not an ideal situation to be in and perhaps it will end up being one of the most important Parts of Duterte’s economic legacy are in the country.